COMMISSIONER OF INCOME TAX vs. J V PATEL PRO. OF ASAIN CHEMICAL & CO.

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ITR/19/1985HC GujaratGJHC24012152198531 August 2000Author: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE D.M.DHARMADHIKARI,HONOURABLE MR. JUSTICE ANIL R. DAVE3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that both questions referred are squarely covered by the Supreme Court's decision in Commissioner of Income Tax Vs. Podar Cement Pvt.Ltd. The Supreme Court held that in the context of Section 22 of the Income-tax Act, 1961, 'owner' is a person entitled to receive income from the property in their own right, and the requirement of registration of the sale deed is not warranted. The Court noted that even if there are two possible interpretations of Section 22, the one favorable to the assessee should be preferred. The Court also referred to the amendment to Section 27 of the 1961 Act by the Finance Act, 1987, which was intended to supply an obvious omission or clear up doubts regarding the meaning of 'owner' in Section 22, and was declaratory/clarificatory in nature, thus retrospective. Therefore, the Tribunal's findings that the annual letting value cannot be added until the registered deed of sale is executed and that the assessee is not the substantial owner merely by paying instalments were found to be incorrect in light of the Supreme Court's ruling. The questions were answered against the assessee and in favour of the department.

What were the facts?

This case involves an Income Tax Reference filed by the Commissioner of Income Tax against J V Patel, proprietor of Asain Chemical & Co. The assessment year(s) are not explicitly stated. The reference concerns the Income-tax Appellate Tribunal's decision regarding the annual letting value of a flat under a hire purchase scheme. The Department is the petitioner, and the assessee is the respondent. Despite notice, the assessee did not appear. The High Court heard the Learned Counsel for the Department and an Amicus Curiae appointed for the assessee. The dispute revolves around when the assessee is considered the 'owner' for the purpose of taxing the annual letting value.

What were the issues?

The High Court was asked to decide two questions of law referred under Section 256(1) of the Income Tax Act: 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that until the registered deed of sale is executed in a hire purchase scheme, even though the purchaser may have been put into possession with all the rights of the owner of the flat, the annual letting value cannot be added to the income of the assessee? (Question of law turning on the interpretation of Section 22 of the Income Tax Act, 1961). 2. Whether, the Tribunal was right in holding on the facts and in the circumstances of the case that the assessee could not be said to be the substantial owner of the flat just because the instalments in respect of the price of the flat remained to be paid? (Question of law turning on the interpretation of 'owner' in the context of Section 22 of the Income Tax Act, 1961). Assessee's contentions: Not recorded as no one appeared for the assessee. Revenue's contentions: Not explicitly recorded, but the reference was made at the instance of the Department, implying disagreement with the Tribunal's findings.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 22,Section 27

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 19 of 1985

For Approval and Signature:

Hon'ble CHIEF JUSTICE MR DM DHARMADHIKARI and Hon'ble MR.JUSTICE A.R.DAVE

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus J V PATEL PRO. OF ASAIN CHEMICAL & CO. -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner SERVED BY RPAD - (N) for Respondent No. 1

--------------------------------------------------------------

CORAM : CHIEF JUSTICE MR DM DHARMADHIKARI and MR.JUSTICE A.R.DAVE

Date of decision: 31/08/2000

ORAL JUDGEMENT The following two questions of law have been referred under Section 256(1) of the Income Tax Act for being answered by us:-

"

1.

Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has been right in law in holding that until the registered deed of sale is executed, in a hire purchase scheme, even though the purchaser may have been put into possession with all the owner of the flat and the annual letting value cannot be added in the income of the assessee?

2.

Whether, the Tribunal is right in holding on the facts in the circumstances of the case that the assessee in the present case could not be said to be the substantial owner of the flat just because the instalments in respect of the price of the flat remained to be paid?"

2.

The reference has been made at the instance of Pvt.Ltd.:-

"Assuming that there are two possible interpretations on section 22 of the 1961 Act, which is akin to a charging section, it is well settled that the one which is favourable to the assessee has to be preferred.

This view is strengthened/supported by the subsequent amendment to section 27 of the 1961 Act. The said amendment was introduced to section 27 of the 1961 Act by the Finance Act, 1987, by substituting clauses (iii), (iiia) and (iiib) in place of the old clause (iii) with effect from April 1, 1988. The presumption against retrospective operation is not applicable to declaratory statutes. A declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual

reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended.

From the memorandum explaining the Finance Bill, 1987, it is clear that the amendment to section 27 of the 1961 Act was intended to supply the obvious omission or to clear up doubts as to the meaning of the word "owner" in section 22. The amendment introduced by the Finance Bill, 1987 was declaratory/clarificatory in nature so far as it related to section 27(iii), (iiia) and (iiib). Consequently, these provisions are retrospective in operation.

Hence, though under the common law "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, the Registration Act, etc. in the context of section 22 of the Income-tax Act, 1961, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted."

3.

The questions are therefore answered against the assessee and in favour of the department. The reference stands disposed of with no order as to costs.

(D.M.Dharmadhikari, CJ)

(A.R.Dave, J) jitu

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